RBA’s rate hiking cycle may run longer than expected, ANZ CEO Shayne Elliott says

ANZ chief executive Shayne Elliott says the RBA may have to continue rate hikes for longer than expected, particularly if demand doesn’t slow markedly.

ANZ chief executive Shayne Elliott says the Reserve Bank may have to continue its rate hiking cycle for longer than expected, particularly if demand doesn’t markedly slow and curtail economic growth.

Speaking at an event in Adelaide on Friday, Mr Elliott said while unemployment remained low and savings rates were high, the outlook was not as challenging as some market pundits were anticipating.

“The economy is in really robust shape and actually households are in much better shape than people think,” he added.

“People think things look a bit bleak … they (consumers) are saving more, they are paying down debt. People are more employed in Australia than ever before and they are confident about keeping their job and they are confident that their pay is going to come.”

Mr Elliott highlighted that these factors suggested rate rises may continue for some time as the Reserve Bank seeks to fight inflationary pressure and cool demand and growth in the economy.

“If the economy after all these rate rises is still really robust, that says there are going to be a lot more rate rises. There are probably going to be more rate rises than people think,” he said.

ANZ’s economics team this week said, however, they expected consumption growth to slow through this year, as consumers dealt with higher interest rates and a fall in real wages due to higher inflation. They anticipate the RBA will lift official rates to at 3.85 per cent this year, up from 3.1 per cent currently. The cash rate was rapidly increased in eight moves last year.

The RBA’s next monetary policy meeting is on Tuesday and most economists are expecting the central bank to deliver a 25 basis point rise.

Rate rises are positive for bank net interest margins — what they earn on loans, less funding and other costs — meaning the sector has benefited from the tightening cycle. That has also spurred optimism of bumper industry profits and helped Commonwealth Bank’s shares climb 1.3 per cent to $111.15 on Friday, marking a record closing price.

All the major banks stocks rallied during Friday’s session, with ANZ leading the gains at 2.3 per cent and its shares closing at $25.75.

Asked about Treasurer Jim Chalmers’ comments around shifting Australia to a values-based economy in partnership with business, unions and community groups, Mr Elliott said: “I have an aversion to the idea (of governments picking winners) … history would suggest it’s not really successful.”

Even with borrowers confronting a sharp increase in rates and hence mortgage repayment amounts, Mr Elliott said ANZ’s loan losses and property and home repossessions remained at historically low levels.

Shayne Elliott. Picture: AAP Image/Sarah Marshall

He noted ANZ had one million home loans and was at a repossession rate of about 100, notably lower than an average cycle of about 450 repossessions. The amount of home loans 90 days past due on repayments was just 0.5 per cent, compared to a long term average of 1 per cent.

“It’s the lowest it’s ever been, so less people are under actual stress today than ever before,” Mr Elliott said.

“That number is falling … it’s still going down.”

Rate rises typically have a lagged impact on the economy given the banks need to inform customers of the new rate and then implement the change through the borrower’s next payment cycle.

Mr Elliott — who said he went into banking by accident after being convinced not to become a teacher — said it was difficult to anticipate how customers would navigate further rate hikes.

“We don’t know what our customers are going to do … how they are going to react,” he added.

The so-called mortgage cliff facing many borrowers who took out fixed home loans at record low rates during the depths of the pandemic is also being closely monitored by banks.

“They are going to have a bit of a shock,” Mr Elliott said, noting though that many of those borrowers were assessed with a buffer rate of 3 per cent on top of the loan’s rate.

“Yes there will be people who find it quite shocking … but in the system sense it’s (mortgage stress) still relatively modest.”

Mr Elliott said borrowers who had already rolled off ANZ’s fixed rates to markedly higher variable mortgages were actually “better performing” on their repayments than the average home loan borrower cohort.

Marion Kohler, the head of the RBA’s economic analysis department, told a Senate cost-of-living committee on Wednesday the bank estimated about $350bn worth of loans across the industry would roll off ultra-low fixed rates to substantially higher variable rates this year.

Ms Kohler said counting the number of affected borrowers was more difficult, but that a “very rough” calculation put the number of loan facilities coming off fixed rates this year “in the high 800,000s”.

CBA, the nation’s largest mortgage lender, will give investors an update on its repayment trends and credit growth when it reports interim earnings on February 15.

Despite Mr Elliott’s comments, there are tentative signs the heat will start to come out of the economy in coming months.

Business confidence tumbled in the fourth quarter as concerns about the fragility of global and domestic economic growth took hold, but that was balanced by strong ­business conditions, a National Australia Bank survey showed this week.

Data this week also showed a bigger-than-expected fall in December retail sales in seasonally adjusted terms.